The Chinese Consumer in 2017: The Lifestyle Upgrade
Chinese consumers are shifting their pattern of spending to discretionary items. They are spending less on housing and food, but more on travel and entertainment compared to other emerging markets.
Observing monthly spending by category, the CSRI analysts find that Chinese consumers are spending more on such goods and services as education, cars, property and mobile phones. Meanwhile spending momentum in many staple categories such as dairy, cosmetics, carbonated drinks, spirits and beer is softening.
More specifically, China has seen a rapid acceleration in entertainment spending relative to the more stable trend in expenditure on food. Food spending now makes up 17 percent of respondents' monthly income versus 19 percent in 2011. Travel and entertainment expenses now represent 11 percent of their monthly income – twice the level recorded in 2011.
This shift in behavior is supported both by higher income and the expectation of higher household income in the next 12 months. With the generation born between 1985 and 1995 reaching their 20s–30s, a relatively affluent young group of China's future middle class is being shaped. They are expected to account for 35 percent of China's total consumer spending in the next five years.
Urban Consumer Enjoys International Travels
Urbanization is a key factor reshaping consumer preferences and demand for travel. Urban respondents in China were seven times more willing to go on an international holiday in 2016 than their fellow rural citizens. The survey highlights that China has the largest proportion of respondents travelling abroad and the greatest increase in willingness to do so. Moreover, China has overtaken Russia as the emerging country with the highest proportion of respondents planning to go abroad next year.
Chinese consumers have started to lead a healthier lifestyle, or intend to do so. Nearly 40 percent of respondents are planning to increase the time spent participating in sports, while almost 80 percent admit they have started to eat more healthily. The need for a healthy and more conscious lifestyle is evident as healthcare spending looks set to grow. Higher longevity and an ageing population are key factors likely to increase the pressure on healthcare expenditure.
A more health-conscious consumer should imply that the consumption of unhealthy food will decline. External sources such as Nielsen's Global Health and Ingredient Sentiment Survey (August 2016) suggest that consumers across emerging countries are much more focused on what they eat than consumers in developed markets. For example, almost 40 percent of consumers in the Asia-Pacific (APAC) region follow a low-fat diet (nearly twice the level seen in Europe or North America). While not as extreme, there is also a higher uptake for low sugar and low-carbohydrate diets across Latin America, Africa and APAC than in Europe or North America. Moreover, consumption of beer, spirits and cigarettes is down year-on-year across most of the countries surveyed.
This trend does not appear to be "youth-led" as middle-aged consumers appear to be changing their behavior in parallel with that of the millennials.
Sports Gain in Popularity across All Age Groups
The Chinese government is focused on expanding the country's sports industry and, as stated above, a large chunk of respondents intend to increase their sport-related activity. The younger generation has the strongest appetite to do so: of the 18–29 age group, 55 percent indicated a desire to spend more time on sports, with just 3 percent indicating the opposite. Among more senior citizens (aged 56+), almost 20 percent want to become more active, with just 2 percent planning to reduce their level of activity.
Premium Products Are the Preferred Choice
Data collected in the CSRI Emerging Consumer Survey suggests that Chinese consumers are more likely to buy premium or more expensive versions of products than mass-produced goods. Positive purchasing momentum was seen only for expensive items (property, cars and jewelry) and "lifestyle" products (sportswear and fashion). At the other end of the spectrum is the spirits category, which lost momentum quite significantly compared to the previous year. However, given that as many as 30 percent of respondents bought more expensive cognac brands in the last 12 months, the negative momentum is probably driven by cheaper, lower-quality products.
Smartphones Are the Exception
One product area where consumer spending intentions are less obviously moving to premium is smartphones. Among the respondents, 92 percent already own smartphones, which is 2 percent and 8 percent higher than in 2015 and 2014 respectively. However, 71 percent of respondents prefer phones that cost less than RMB 2,500. This explains why 52 percent of respondents think they will choose Android versus 24 percent expecting to choose iPhones in the next 12 months. Clearly, domestic smartphone brands are on the rise, driven by their value for money.